Is the deal accretive or dilutive if an acquirer with net income of $100 million and 20 million shares outstanding purchases a target with $20 million net income by issuing 5 million new shares?

To determine whether the deal is accretive or dilutive, we first need to calculate the earnings per share (EPS) of the acquirer before and after the acquisition.

Initially, the acquirer has a net income of $100 million and 20 million shares outstanding. The EPS before the acquisition is calculated as follows:

[

\text{EPS}_{\text{acquirer}} = \frac{\text{Net Income}}{\text{Shares Outstanding}} = \frac{100, \text{million}}{20, \text{million}} = 5

]

After the acquisition, the target company adds $20 million to the acquirer's net income. The total net income post-acquisition becomes:

[

\text{Total Net Income} = \text{Acquirer's Net Income} + \text{Target's Net Income} = 100, \text{million} + 20, \text{million} = 120, \text{million}

]

At the same time, the acquirer issues 5 million new shares, increasing the total shares outstanding to:

[

\text{Total Shares Outstanding} = 20, \text{million} + 5, \text